Will the Six Month Roadmap Work?
By Sumanasiri Liyanage
The Governor of the Central Bank of Sri Lanka, Ajith Nivard Cabraal, presented on 1 October 2021 a six months roadmap for ensuring macroeconomic and financial system stability in 85 power point slides. He began with the premise that Sri Lanka has been severely challenged in the past few years. He has identified 16 long- and shortterm causes for this economic debacle. While the sluggish growth and struggling business, possible increasing of nonperforming loans, low level of foreign exchange reserves, and the debt sustainability in the face of large outstanding international sovereign bonds may be included in the category of medium- or long-term causes, the reasons stemming from the low level of confidence may be cited as the short-term causes with formidable impact on longterm economic stability and growth if not corrected in due time.
So, stockpiling of imported goods and the stockpiling of foreign exchange reserves for speculative reasons were highlighted in the roadmap document. He further added that regular doomsday reports by the Opposition and other interest groups have also contributed in nurturing the negative sentiments over the economy. While highlighting the operation of speculative activities and the ill and lethargic behaviour of some business groups, the Governor has said that we have to admit the economy has shown little positive progress over the past few years. GDP at current prices has declined from 83,976 billion US dollars to in 2019 to 80,707 US billion dollars in 2020 after experiencing negative growth in 2020.
It is interesting to note that Sri Lanka has recorded reasonably a high growth performance between 2005 and 2014; the growth rate became sluggish since 2015. This has shown in almost all the important economic indicators. Among them, foreign indebtedness and the dwindling foreign exchange reserves appear to be prominent. Hence, it is obvious and clear that some structural factors have been at work. In the last 44 years under neoliberal economic setting, irrespective of the fact that Sri Lanka recorded reasonably high growth rates in some years, the country has failed to sustain it beyond 4-5 years period. The time prosperity has been short-lived a phenomenon.
So, it is hard to attribute these reasonably higher growth performance years to structural causes. On the contrary it is more correct to say progress was due to conjunctural reasons. Nonetheless, according to the Governor, the current debacle is not caused by structural reasons but by a mismanagement of the economy exacerbated by an epidemiological crisis. The diagnosis of the roadmap is: “Weakening of the economy, along with the effect of the COVID-19 pandemic, has recently caused anxiety about the macro-economic stability and the sustainability of the Sri Lankan economy.”
Figure 1 summarises what is contained in the proposed framework. Although the roadmap is confined to sixmonth period, it includes threepronged approach going beyond the six-month period that covered the roadmap. It is a positive sign. Nonetheless, the proposal in its entirety is with short-term horizon that has been historically the main cause of the Sri Lanka’s failure to address the structural issues associated with economic development. This is my first concern and criticism of the roadmap presentation. Let me emphasise that my three-point critique is intertwined.
Such an addressing of those structural issues needs a planned economic framework that covers at least a five- to ten-year period. Secondly, the other noteworthy dimension of the proposed roadmap is its approach is essentially circulationist not productionist. What does it mean? The economic system comprises an integrated two sectors, production of value and the realisation of value. It is in the circulation process that the second is materialised. In a capitalist system the value that is produced should be marketed in order to realise it. Failing that value may become an anti-value. Read carefully Figure 1.
Except the target of ‘strengthen the domestic production economy” all other targets are associated with the circulation dimension of the system.
Figure 2 lists the main stakeholders to whom the roadmap framework is addressed. Almost all major stakeholders are operating in the circulation sphere and the tasks given to them are directly associated with the circulation side of the economy. Of course, as an outcome of the COVID-19 pandemic, the circulation sphere and its activities are greatly disturbed so that some immediate corrective measures are imperative.
Are they the real stakeholders? If we focus ourselves on the aspect of the circulation of commodities (both goods and services), they would play a prominent role. Nonetheless, if someone turn to the production sphere, the picture is substantially different. Let me consider first on value- creation rather than on value- realisation.
Figure 3 shows that the biggest portion of value creation, i.e. nearly 50 per sent, comes from the household and non-profit institutions serving households. This is much more prominent in the agricultural sector in which 80 per cent are small holders. Hence it is clear that any realistic plan of economic development, should be reversed the order. The contribution of the corporate sector is less than 40 per cent. The difference between the productionist approach and the circulationist approach takes us once again to my first criticism that the roadmap focuses essentially on the short-term.
My third criticism directly stems from the first two. Given the socio-economic configuration, the roadmap shows a clear elite bias. The recent rise of consumer prices has indicated that it is the poor masses that are asked to bear the cost of revitalising the economy uncertainty of its final outcome notwithstanding. Although the proposed steps may help reactivating certain sphere of the economy and increasing the current sluggish growth, what is imperative is a long-term economic plan focused on the production sphere and oriented towards the small scale players.
The writer is a retired teacher of Political Economy at the University of Peradeniya. ([email protected])